There is a saying ‘buy and hold’, I like to think that if you buy a property with no strategy you may as well buy, hold and start praying! Every successful investor has a strategy and with the right strategy, it’s nearly impossible not to enter the property market and live the ‘Australian Dream!
If you’re buying your first home to live in, your criteria will often be different from an investor – as investors look at numbers – however, the best investors will find properties similar to what an owner-occupier would buy but without the attached emotional baggage.
Owner-occupiers are typically more emotional purchasers because let’s face it, we don’t want to live in a hovel even if the numbers do ‘stack up! So, emotion drives the price up when we find a home we really want,. This is great when you sell to another owner occupier – hello ROI! (return on investment) and it’s something to watch when your purchasing so you don’t overspend and over commit!
Why is this so important when you buy? Your first home or any home you own is one of your largest assets and it’s important to have your property working for you, growing in value, especially while you live there – you want your property to work smarter, not harder!
So here are 4 key steps to buying your first home like a boss!
What do you want to achieve?
Your answer to this may be, find a home, but it’s important to consider if you want to buy investment properties after this, as it will affect how you structure your finance and the type of loan product you get.
You may also find the first home you want is out of reach, if this is the case you can look at other options like:
Buying an investment property first, paying the debt down with rental income and utilising the equity (the difference in value of the property compared to what you owe the bank) for the deposit on the place you want.
Or buying an older style apartment/house and then renovating this to increase its value. The increase in value can give you the option to either release equity or sell the property and use the profits as a deposit on your dream home. You could also live in the apartment/house you renovate as you can customise the renovation to your preferred style.
Review your budget
Yes, we all want all the nice things now but the ultimate question is, would you rather work for 60 years or work hard for 15 years? – I know which one I’d choose!
Reining in your budget now and investing will set you up for the future and it will also get you in some good habits for when you have more disposable income.
Wealth is created in the gap between your expenses and your income, so if you earn $100K per year and spend $100K per year – you’re broke! Whereas if you earn $100K a year and spend $50K a year then you now have the funds to be spontaneous, like take that trip to Paris or rent that yacht for a week so you can sail around Croatia.
Minimising your expenses will enable you to borrow more with the bank as you will have more income to service the mortgage repayments once you’ve purchased your home.
As a general guide, it’s best to write down all your expenses and work out exactly which of those are necessary, as in which ones you need to survive as opposed to which ones you think you need to survive.
Before you go out property shopping (which is the best kind of shopping) it’s far more exciting and less deflating if you know exactly how much you can afford to spend.
Every bank and broker will be able to give you a ‘pre-approval’ which is a formal assessment of your income, expenses, assets and liabilities which then gives you an estimate on how much you can afford to borrow. This pre-approval lasts for 6 months – plenty of time to find your first home!
Tip: a broker or loan comparison site will be able to give you an idea of the different banks and which one may suit you. Each bank has slightly different lending policies so depending on your bank you can borrow slightly more or less than another bank.
Finding your first home
This step is subjective and will really depend on your lifestyle and in turn your ideal location. Typically, owner-occupiers will purchase properties in areas they know and are familiar with. If you’re thinking of moving out of an area it can be worthwhile to spend some time walking around the area you’re thinking of purchasing in and even staving for a few nights in an Airbnb – it will save you money in the long run!
Tip: Make sure you Airbnb a place on a week day so you can check out your morning commute and how your daily routine will work.
If you’re wanting to work smarter not harder and have your home make money for you, then as a general rule of thumb, properties within a 10-30 kilometre radius of a major city with high population growth will generally be in higher demand when buying, selling or renting. Interest rate fluctuations can affect this due to supply and demand and other affordability issues however properties purchased within these areas will often provide a better return overall with less risk.
Similar to the strategy an investor will adopt, it’s best to buy in a down or levelled market and sell or have your portfolio revalued in a booming market. This gives you the best opportunity to maximise your profit/equity position, particularly when wanting to borrow more funds.
If your ideal lifestyle, home or location is out of reach, it can be a good option to look at properties in the neighbouring suburb. Over time with the high population growth in major cities, these suburbs will often increase in value and can even maximise your return!
It’s far easier to buy your first home when you know what steps to take and for one final tip that my grandfather always said:
“it’s important to have at least one property in your portfolio that you either own or aspire to own outright (not owned by the bank), so you’ll always have a roof over your head”.